Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/224048
Authors: 
Gries, Thomas
Naudé, Wim
Year of Publication: 
2020
Series/Report no.: 
IZA Discussion Papers No. 13606
Abstract: 
The economic impact of Articial Intelligence (AI) is studied using a (semi) endogenous growth model with two novel features. First, the task approach from labor economics is reformulated and integrated into a growth model. Second, the standard representative household assumption is rejected, so that aggregate demand restrictions can be introduced. With these novel features it is shown that (i) AI automation can decrease the share of labor income no matter the size of the elasticity of substitution between AI and labor, and (ii) when this elasticity is high, AI will unambiguously reduce aggregate demand and slow down GDP growth, even in the face of the positive technology shock that AI entails. If the elasticity of substitution is low, then GDP, productivity and wage growth may however still slow down, because the economy will then fail to benefit from the supply-side driven capacity expansion potential that AI can deliver. The model can thus explain why advanced countries tend to experience, despite much AI hype, the simultaneous existence of rather high employment with stagnating wages, productivity, and GDP.
Subjects: 
technology
artificial intelligence
productivity
labor demand
income distribution
growth theory
JEL: 
O47
O33
J24
E21
E25
Document Type: 
Working Paper

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